A Look Back at EDS: From Ross Perot to Cowboys Herding Cats

Hewlett-Packard is in advanced talks to acquire Electronic Data Systems. Here’s a brief history on EDS.

In 1962, Ross Perot quit working as a salesman for IBM and founded Electronic Data Systems when he incorporated the company in the state of Texas for $1,000. Perot’s goal was to start a company that offered skilled electronic data processing management personnel along with the computer equipment. He targeted large corporations and offered long-term contracts at a time when short-term contracts were the norm. The company signed its first long-term commercial facilities management contract with Frito-Lay in 1963.

The Social Security Act of 1965 created Medicare and Medicaid and EDS designed a system to process insurance claims and payments for Texas’s program. In 1969, the company landed a contract with California Blue Cross to handle its backlogged Medicare data processing. The claims processing programs became an early driver of the company’s revenue, which topped $16 million by the end of the decade.

In 1968, the company held its first public offering at $16.50 a share and closed at $22. Perot and EDS each received $5 million from the offering. The shares topped out at $160 in 1970 but dropped to $15 in 1973 after a sharp decline in the stock market. Still, the company’s revenue and earnings grew.

In 1978, EDS expanded into financial markets by introducing automated teller machines, electronic funds transfer and real-time point-of-sale terminals. In 1988, it acquired MTech Corp., an operator of automated teller machines, for $347 million. By 1997 it became the country’s largest maker of ATMs.

In 1984, GM agreed to buy EDS for $2.5 billion. Under GM, the company expanded internationally and its sales grew to $3.4 billion. Earnings, however, fell by 5.5% in 1985 and Perot, who still ran EDS, butted heads with GM. By 1986, GM paid Perot $700 million for his stock and he was dismissed. He was replaced by Les Alberthal who started as a trainee with EDS in 1968. In 1988, Perot started a rival company, Perot Systems Corp. In June 1996, EDS again became independent when it was spun off from GM.

By the end of the 1990s, EDS faced stiff competition and rising costs. This led to a $1 billion reorganization and laying off of 13,000 employees. The cost-cutting efforts under CEO Richard Brown, a media savvy executive, were successful and the company returned to profitability. Brown attempted to raise the company’s profile with such moves as buying a Super Bowl ad that portrayed cowboys herding cats.

In 2000, EDS had two main competitors: IBM and Computer Sciences Corp. In just a few years, that number greatly increased thanks to global competition from offshore rivals. In 2003, the company was mired in red ink and had $5 billion in debt. CEO Michael Jordan was charged with leading the turnaround. He restructured contracts, centralized some business functions, diversified into additional support services and targeted new accounts. By 2006, Jordan had won back Wall Street Ronald Rittenmeyer, the current CEO, helped in the turnaround while serving as chief operating officer, but the company has seen earnings drop in recent quarters.